Barron's - USA (2020-10-19)

M2 BARRON’S October 19, 2020

aren’t selling stocks wholesale to reduce

risk in the face of the mixed data, and un-

certain outcomes. Instead, they seem to be

trying to puzzle out the correct positioning,

whether it’s a Donald Trump or a Joe Biden

win, a spike in Covid cases or a successful

treatment, or a slowdown in the economy

versus an acceleration.

All that changes day by day, so the result

is market oscillation, says Peter Kenny, an

independent equity strategist at Kenny & Co.

“Investors aren’t reducing risk by selling the

market,” he explains. “Cautious investors

are saying, ‘I love the market,’ and going

where there’s greater perceived value.”

Exactly where that is remains a point of

contention. Cyclical stocks are no doubt

cheaper than growth stocks, and long-suf-

fering value investors insist that the group

will have to outperform someday.

For a moment, that someday appeared

like it might be now after highflying soft-

ware companyFastly(FSLY) issued down-

beat guidance. The reduction in revenue

wasn’t enormous—just 5% or so—but the

reaction from the stock was enormous: Its

shares fell 27%. Yet even after tumbling, the

stock ended the week up 322% in 2020, and

trading at 17 times sales, more than seven

times the S&P 500’s 2.4 times.

Still, it’s too early to read one company’s

pain as an omen for all tech, especially

since the Nasdaq’s rise has been driven not

by puny software companies—no matter

how richly priced—but byApple(AAPL),

Microsoft(MSFT), andAmazon.com.

(AMZN), which together withTesla

(TSLA) have accounted for half of the Nas-

daq 100’s 2020 gains. “While we think the

time to rotate is growing closer, we do not

agree this Fastly guidance cut is a canary in

the coal mine that signals the end of tech’s

outperformance,” writes Tom Essaye, au-

thor of The SevenReport newsletter.

Thankfully, picking a side doesn’t have

to be a long-term commitment. Wolfe Re-

search strategist Chris Senyek, for instance,

contends that the market is too optimistic

about everything from Covid-19 trends,

economic data, and what a Biden would

mean, while monetary policy continues to

favor growth and momentum stocks. That

being said, he launched a “renormalization”

basket, which includes beaten-down stocks

likeWalt Disney(DIS),Wynn Resorts

(WYNN), andVail Resorts(MTN), among

others, that investors can use to take advan-

tage of these swings.

“Positive vaccine news flow and choppy

economic readings are likely to lead to sev-

eral short-lived ‘renormalization’ trades

that favor some of the most beaten-up sub-

sectors and companies,” Senyek writes.

“Importantly, we view this basket as a trad-

ing vehicle until it appears that the growth

outlook will sustainably improve.”

When in doubt, trade away.

A Play on Data-Center Growth

Honeywell Internationalis acting more

like a software company than an industrial

conglomerate. The company announced a

techlike collaboration this past week with

another firm that should enhance both

partners’ long-term outlooks.

That’s a small bit of good news for Hon-

eywell (HON) investors. But it could be a

very big bit of good news for the company

Honeywell partnered with:Vertiv Hold-

ings(VRT).

Honeywell and Vertiv announced a joint

effort on Thursday to help data centers

reduce energy consumption. Honeywell’s

Building Technologies division provides

management systems for data centers that

run things such as air conditioning and

sprinklers. Vertiv makes power-manage-

ment systems for data centers.

Power is a big deal for data centers,

which consume 1% of the world’s total en-

ergy output. Reduced consumption can

save big dollars. “Our offerings complement

each other to provide greater value to data

center operators,” said Vertiv CEO Rob

Vital Signs

Friday's Week's Week's

Close Change % Chg.

DJ Industrials 28606.31 +19.41 +0.07

DJ Transportation 11836.43 -25.52 -0.22

DJ Utilities 884.52 +8.71 +0.99

DJ 65 Stocks 9603.02 +14.12 +0.15

DJ US Market 869.61 +1.79 +0.21

NYSE Comp. 13169.32 -83.30 -0.63

NYSE Amer Comp. 2012.12 +15.09 +0.76

S&P 500 3483.81 +6.68 +0.19

S&P MidCap 1997.34 +0.98 +0.05

S&P SmallCap 923.71 -2.48 -0.27

Nasdaq 11671.56 +91.61 +0.79

Value Line (arith.) 6658.93 -12.29 -0.18

Russell 2000 1633.81 -3.74 -0.23

DJ US TSM Float 35759.58 +63.20 +0.18

Last Week Week Earlier

NYSEAdvances 1,141 2,407

Declines 1,987 723

Unchanged 58 55

New Highs 308 325

New Lows 60 78

Av Daily Vol (mil) 3,903.7 3,991.7

Dollar(Finex spot index) 93.72 93.06

T-Bond(CBT nearby futures) 174-290 174-010

Crude Oil(NYM light sweet crude) 40.88 40.60

Inflation KR-CRB(Futures Price Index) 151.48 151.74

Gold(CMX nearby futures) 1900.80 1919.50

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